AFR: Chevron Says $1.7b Gorgon Profit Not Taxable

Chevron Corporation's global tax counsel Sandy Macfarlane has dismissed reports that a Delaware subsidiary paid $248 tax on an estimated $1.7 billion profit from Australian interest payments, telling the Senate tax inquiry that under US law none of the amount was taxable.

Mr Macfarlane and Chevron Australia chief executive Roy Krzywosinski faced a torrid grilling by the Senate committee over a $269 million Federal Court judgment against Chevron last month. The case involved a US subsidiary which borrowed $US2.45 billion in 2003 at an average of less than 2 per cent interest, and on-lent the money to Chevron Australia at an average of 9 per cent interest.

In a later session, Deputy Tax Commissioner Jeremy Hirschhorn said Chevron had acknowledged in its testimony that its current $36.5 billion ($51.4 billion) debt was a hybrid-debt structure which did not pay tax on its interest profits in Australia or the US.

"As you heard today, both the old arrangement and the new arrangements are effectively hybrid arrangements," Mr Hirschhorn said.

The OECD's Base Erosion Profit Shifting project specifically targeted hybrid-debt structures which paid no tax on transactions in any country, he said.

Mr Hirschhorn said foreign oil and gas companies were pushing the envelope in their funding structures, "in some cases pushing it too far".

Mr Macfarlane attacked reports in The Australian Financial Review relating to the $1.85 billion that Chevron Australia paid to its Delaware parent, Chevron Australia Petroleum Company, in interest payments on related-party debt as "completely mistaken".

BIPARTISAN CRITICISM

"They're getting their information from a group called the International Transport Workers Federation which is union-supported," Mr Macfarlane said.

The testimony by the two Chevron executives drew bipartisan criticism by the committee after the hearing.

"Their argument is we aren't doing anything that's not outside the law.

"They may not be doing something that's illegal but they 're certainly doing something that is immoral."

Mr Krzywosinski confirmed that the Australian Tax Office in October 2014 began auditing Chevron Australia's tax returns from 2009 to 2013 and is examining the pricing of $36.5 billion in loans from its Delaware parent, Chevron Australia Petroleum Company.

Tax Commissioner Chris Jordan said the audit was into the pricing of the loan, both the margin charged and the currency used.

Mr Macfarlane confirmed that Chevron APC was charging interest of "about 5 per cent' on a loan to Chevron Australia, but said the Financial Review report's claim that this was 25 times the cost of funds that Chevron APC paid to external lenders was "patently false".

Filings by Chevron's Singapore companies show intragroup loans at 0.17 per cent or less.

In heated questioning, Mr Macfarlane told Mr Dastyari that the Chevron group's entire debt was $US24 billion last year, with $US13 billion held in cash.

The net debt figure of $US11 billion is more than twice the $36.5 billion debt that Chevron Australia owes Chevron APC, suggesting the cost of funds for a major portion of the Australian debt may be zero.

RELATED-PARTY DEBT

US Securities and Exchange Commission accounts for 2014 show Chevron Corp held $US12 billion at 0.12 per cent interest.

Mr Krzywosinski tabled an ACIL Allen Consulting study which predicted the Gorgon and Wheatstone projects would contribute $110 billion in direct state and federal taxes by 2040.

However, under questioning by Greens leader Richard Di Natale, the Chevron executives conceded that the study did not include the effects of interest rate deductions for related-party debt by its partners, Shell and ExxonMobil, which in 2014 totalled $1.1 billion.

In 2014 alone, the combined total related interest payments of the three partners was $2.9 billion.

Mr Macfarlane said it was misleading to say Chevron was late in filling US tax returns.

Like all large companies, Chevron was continually being audited by the US Internal Revenue Service. For the 2009 return, "we're just wrapping up one issue we have".